1. Product Pricing

2. product cost
Product cost is the cost of direct labour, direct materials, and manufacturing overhead that are consumed to create a product. Product cost can also be considered the cost of the labour required to deliver a service to a customer.
Product cost can be recorded as an inventory asset if the product has not yet been sold. It is charged to the cost of goods sold as soon as the product is sold (see the Matching Principle), and appears as an expense on the income statement.

3. Value of a product
The value product (VP) is an economic concept formulated by Karl Marx 
Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production:
Wages & salaries of employees.
Profit including distributed and undistributed profit.
Interest paid by producing enterprises from current gross income
Rent paid by producing enterprises from current gross income, including land rents.
Tax on the production of new value, including income tax and indirect tax on producers.
fees paid by producing enterprises from current gross income, including royalties, certain honorariums and corporate officers' fees, and certain leasing fees incurred in production and paid from current gross income.

4. Market economics
A market economy is an economy in which the prices of goods and services are determined in a free price system
In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.
The term free-market economy is sometimes used synonymously with market economy.
Where A free market is a competitive market where prices are determined by supply and demand.

5. Demand
Demand is defined as desire backed by willingness and ability to pay.
Individual demand: Single entity’s demand
Market demand: Sum total of individual demand function

6. Law of Demand The demand for a commodity increases when its price
decreases and falls when falls when its price rises , other
things remaining constant
Factors behind the law of demand
Substitution effect
Income effect

7. supply
Supply during a period of time means the quantities of goods which are offered for sale at particular prices.
It may be defined as the amount of that commodity which the producer are willing to offer for sale at a particular price during a certain period of time.

8. Law of Supply
Other things remaining unchanged, the supply of a commodity expands with a rise in its price and contracts with a fall in its price. Example : TAMIFLU AND N95 in swine flu

9. Price sensitivity Price elasticity of demand :
Price Elastic products: personal care like soaps, shampoos etc
Price inelastic products : daily food items, medicines

10. Cost output relationship
In short run
Output has no impact on cost
But in long term
Cost decreases if output increases
Point of output at which cost is minimum is called as economies of scale

11. Profit
Profits are the difference between revenues and costs. In a trade transaction, profit is the difference between the price at which you sell a good and the price at which you bought it. Running a business, net profit is what is left out of turn- over after paying suppliers, workers, financing institution, and the state.
And the management decisions intended to achieve stable and desirable profits is known as profit management.

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Pricing Decisions

13. To a customer, it represents a monetary sacrifice.
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What is Pricing – To a manufacturer – pricing represents the quantity of money, received by the firm or seller for its product.
To a customer, it represents a monetary sacrifice.
Quantity of money received by the seller
PRICE =
Quantity of goods & services received by buyer
In this equation both the parts are important for price decisions.

14. Points to learn How to set the price of a new product/ service
How to adapt the price
How to respond to competitors price change

15. Changing paradigms….
Traditional view negotiation between seller & buyer
Setting one price for all relatively new concept
Role of Internet
Price a major determinant of the buyers choice
More access to information

16. Common pricing mistakes
Too cost oriented
Price is not revised often
Price is seen as independent of the other elements of marketing mix
Price is not varied enough.

17. How companies price Small companies- Person in charge
Large companies- Division & product line managers which is in sink with the pricing objectives set by the top management.
Industries where pricing is key factor (petroleum, aerospace etc) – Pricing department

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Pricing
Pricing( a complex task) : There is a science side & art side to it

19. Factors influencing pricing
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Factors influencing pricing
Internal factors Corporate objective The image sought Nature of the product Stage in the plc Usage pattern Cost of manufacturing Extent of differentiation Other elements of the marketing mix

20. Factors influencing pricing
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Factors influencing pricing
External factors
Market characteristics
Price elasticity of the demand
Buying behavior of the customer
Bargaining power of supplier/customer
Competitors pricing
Government control
Price cartels

21. Pricing Framework Demand Government policy Corporate objective Price
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Pricing Framework
Demand
Government policy
Corporate objective
Price
Competitor reactions
Barriers in industry
like technology
Exit barrier
Costs

22. Pricing Methods Cost based pricing Mark up pricing
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Pricing Methods
Cost based pricing
Mark up pricing
Absorption cost pricing
Target rate of return pricing
Marginal cost pricing
2) Demand based pricing
What the traffic can bear pricing
Skimming pricing
Penetration pricing

23. Pricing Methods 3) Competition oriented pricing Premium pricing
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Pricing Methods
3) Competition oriented pricing
Premium pricing
Discount pricing
Going rate pricing
4) Tender pricing
5) Affordability pricing
6) Differentiated pricing

24. Selecting a Pricing Methods
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Selecting a Pricing Methods
Mark up pricing – the total cost of production is estimated & a mark up or the margin that the firm wants is further added:
Unit cost = Variable cost + Fixed Cost
Unit Sales
Mark up price = Unit cost
(1- Desired return on sales )
Easy to determine the cost
Price tends to be similar
Fair to both seller & buyer

25. Selecting a Pricing Methods
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Selecting a Pricing Methods
Target return Pricing – Determining the price which would yield the target return on investment : Target return price = Unit cost + Desired return * Invested capital Unit Sales

26. Customer-oriented or perceived value pricing
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Customer-oriented or perceived value pricing
(i) Acquisition value and
(ii) Transaction value
Acquisition value of a product:
Transaction value determined by comparing buyer’s reference price to actual price
To measure perceived value, a marketer may use any of the following methods:
Direct price rating method
Direct perceived value rating
Diagnostic method
Economic value to the customer
Perceived benefits
Perceived sacrifice

27. THANK YOU -PHARMA STREET